Buyout money can help - and hurt - your wallet

Ruben Gomez, reporter, Federal News Radio

More federal employees are making potentially life-changing decisions, as more agencies offer them money to quit.

The Agriculture Department, Small Business Administration and Centers for Disease Control have all joined a growing list of agencies hoping to trim payroll expenses by offering buyouts, under pressure to cut federal spending.

Agencies are offering up to $25,000, but the amount some federal employees take home after taxes could be several thousand dollars less. And career experts warn employees considering buyouts to move cautiously.

"If you're really thinking of actually retiring ... you need to look at the financial side," said John Grobe, president of Federal Career Experts. "Will you have enough money to support you in the retirement style that you are looking forward to? For those people who are thinking of taking a buyout and going on to do something else, they need to do their homework on exactly what it is they are going to do."

Buyouts can reduce annuity payments for people under the Federal Employees Retirement System.

"Their annuity goes up by about 1 percent for each additional year they work, and they're going to lose out on that," said Arthur Stein, certified financial planner with SPC Financial. "Remember, that's guaranteed payment for the rest of your life."

Getting another job

For some people, a buyout marks the end of work-life and the start of retirement. Others go on to work in the private sector, including at federal contractors. Financial experts say that can be a risky move.

"We're at a time when there's a lot of talk of drastically cutting back on what the federal government spends," Stein said. "And contractors are going to be hit really hard."

But moving to the private sector can also be rewarding.

"They would still take their Social Security benefits throughout life with them," said Tammy Flanagan, senior benefits director at the National Institute of Transition Planning. "Their TSP money would be the same as their next company's 401(k) plan. And because they would be eligible for the early retirement, they could collect an immediate benefit under FERS, which generally would give them lifetime health benefits, and life insurance, and immediate income to help give them a basis for their support. So I can look at that both as an opportunity for someone but also something you want to approach cautiously."

Working elsewhere in the federal government

Federal employees who accept buyouts can work for other federal agencies, Grobe said. But the move comes with strings attached.

"If you take another federal job within five years of accepting the buyout, you are going to have to pay that buyout back," he said. "That is also true if you were to take a position as ... a personal services contractor."

Federal employees who make the best decisions about buyout offers are those who contemplate the decision well before their agencies offer the money, Grobe said.

"Sit back and think, 'What would I do if my agency offered me a buyout?' That's probably more productive than sitting around saying, 'What would I do if I won Powerball?'"